Price action
Family VI · Charts & indicators
Not to be confused with price channel, price gap.
Price action refers to the movement of a security's price over time as displayed on a chart, interpreted without the use of technical indicators. It focuses on raw price data—open, high, low, close—and the patterns formed by those prices, such as trends, ranges, and reversals. Traders who use price action aim to read market sentiment directly from the chart.
Reading price action
Price action analysis examines the sequence of bars or candles on a chart to infer shifts in supply and demand. Common elements include swing highs and lows, support and resistance levels, trendlines, and candlestick patterns. Unlike indicator-based methods, price action does not transform price data; it uses the data as presented.
For example, a series of higher highs and higher lows suggests an uptrend, while a failure to make a new high may indicate weakening momentum. Traders may combine price action with volume or other context, but the core input remains the price chart itself.
Worked example
Suppose a stock trades in a range between $50 and $55. A price action trader notes that the price has touched $55 three times and $50 twice. The trader might interpret $55 as resistance and $50 as support. If the price breaks above $55 with a strong candle, it could signal a bullish breakout.
Relation to other chart concepts
Price action is distinct from indicator-based analysis, which derives values from price or volume. It is also different from price channel, which is a specific chart pattern formed by parallel trendlines, and from price gap, which is a discontinuity in price between two periods. Price action encompasses a broader set of observations about price movement.
Often confused with
- price channel
- A price channel is a specific chart pattern defined by two parallel lines that contain price movement, whereas price action is the general study of price movements; the visible sign is the presence of parallel lines on the chart.
- price gap
- A price gap is a specific event where the price jumps between two periods with no trading in between, while price action is the overall analysis of price movements; the visible sign is an empty space on the chart between candles.
See also
- forex technical analysis indicators
- fundamental analysis
- support and resistance
- technical analysis
- fibonacci
- candlestick